Section 3: Business Applications: Chapter 9 - E-Business Decision Support

Chapter 9 - E-Business Decision Support This chapter is central to the use of IS/IT. As I have said in class numerous times, IS/IT exist solely to support managerial decision making. As the authors state on page 348, "We will concentrate our attention on how the Internet, intranets, and other web-enabled information technologies have significantly strengthened the role of information systems play in supporting decision making activities of every manager and knowledge worker in the internetworked Ebusiness enterprise." (emphasis added) The Amway real world case on page 349 provides a good illustration of how IS/IT can support managers. Before studying how IS/IT can support the managerial decision making process, we need a good understanding of the managerial decision making process itself. Below is the Harrison model of managerial decision making, developed by E. Frank Harrison. It illustrates the process nature of decision making. The Harrison model is particularly suited to our purposes because it is an "information driven" process. As you can see from the illustration, the process consists of six phases and the process is iterative in nature. The process begins with management setting objectives. One of the primary functions of management is to set objectives which must be specific, measurable, and (realistically) attainable. Once set, the objectives form the basis for the decisions to be made. Managers next search for alternative methods of achieving the objectives. Once a number of alternatives have been identified, managers evaluate each of them. After the evaluation process is complete, managers have a relatively easy choice to make - the "best" alternative. This is the "Act of Choice" phase that most people think of when the topic is discussed. A major point here is that the "Act of Choice" cannot be validly completed without the three previous phases being completed. To do otherwise is to make a "SWAG". Once a choice has been made, the manager must then implement the decision. Failure to complete this phase renders all previous phases meaningless, an exercise in futility. Finally, the manager must monitor the implemented decision to verify that the decision is producing the desired results. This is the "Follow-up and Control" phase. Managers must ensure that they have an IS that will provide the information necessary to monitor the decision made. With the information managers can control the situation, making subsequent decisions as necessary. This phase of the decision making process "defines" the information requirements for managers. Look at this (relatively simple) Cost-Volume-Profit example (also known as Break Even Analysis). A manager is considering the production of a product that sells for $6.00, costs $2.00 to produce, and will have a $35000 fixed startup cost. The marketing department tells the manager that at the projected selling cost the expected sales volume is 8000 units. Does the manager make the product or not? Cost-Volume-Profit analysis can assist in the decision. The accompanying Excel Spreadsheet illustrates the decision support. At the projected figures, the breakeven volume, 8750 units, exceeds the marketing department's sales projection, so the product should not be manufactured. What if, however, the engineering department tells the manager that a simple redesign of the product can reduce the production cost to $1.50 per unit, and the fixed startup costs can be reduced to $20000. Under these conditions should the product be manufactured? Here we can see that the breakeven volume is now 4444.4 units, which is below the anticipated sales of 8000 units, so the product will generate a profit and should be made.